June 28 (Bloomberg) -- Top lawyers for Barclays Plc and Citigroup Inc. said the U.K. regulator taking over for the Financial Services Authority could stifle innovation by using its power to ban risky financial products.
Brad Gans, Citigroup’s chief legal officer for Europe, Middle East and Africa, said it is how financial products such as collateralized debt obligations were used and sold, rather than how they were designed, that contributed to the global credit crunch. The products themselves weren’t bad, Gans said at a Financial Services Authority conference today.
The FSA, the U.K.’s financial regulator, will be abolished by the end of 2012 and replaced by at least two new authorities as part of an overhaul of financial supervision. One of the replacement agencies, the Financial Conduct Authority, has been given powers to ban risky financial products or limit how they are marketed, as well as publish information about its disciplinary investigations while they are in progress.
“I don’t think the FSA should outlaw products, that’s too far,” Gans said. “We do want consumers to have choice.”
Mark Harding, the general counsel for Barclays, said “we just kill innovation” if we ban products.
“I think we should collectively regard it as a failure on the part of the regulator if we have to ban products on anything but an occasional basis,” Harding said. The more complex products “were never devised in the first place to be sold to consumers.”
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